COVID-19 Shakes Up Generational Financial Services Assumptions
If you have read any marketing articles or listened to any webinars based on generational segments, the Millennial generation is always mentioned as the segment that businesses should target. Why? Because the prediction is that the Millennial generation will see a huge transfer of wealth over the next five years. A 2019 article in Forbes magazine stated: "A study shows that Millennials will hold five times as much wealth as they have today, and the group is anticipated to inherit over $68 trillion from their Baby Boomer parents by the year 2030." With astounding statistics like that, financial firms have every reason to target the Millennials.
The other attractive aspect of Millennials is their use of electronic channels. For years, financial institutions have predicted the shift to digital channels, resulting in the reduction of operating expenses and a reduction of the branch network. The digital shift would either occur as a result of a change en masse of consumer financial behaviors or by a significant event that would accelerate the change.
Then COVID-19 hit, and both of those significant components of the digital shift occurred. The part of the financial behavior transformation that was NOT part of the prediction was the shift of ALL generational segments to digital. The digital products that the younger members were using, such as P2P, Debit Cards, and Remote Deposit Capture, are now being used by the older generational segments as well. Baby Boomers, who were known as the generational segment that predominantly used the branches, are now using the same digital products as the Millennials.
Why did the Baby Boomers' behavior move from physical transaction models to digital models? The restrictions posed by COVID-19. With stay-at-home orders, social distancing requirements, and the recommendations to have minimal contact with surfaces, the only method to transact business (financial or retail) were digital channels.
The newest generational segment, Gen Z, is following in the footsteps of the Millennial generation with one crucial difference: their preferred transaction channel is mobile. Gen Z grew up with smartphones as part of their lives and, thus, use those devices and the apps on those devices to move through their daily activities.
The assumption then may be made that the Gen Z generational group would not be interested in traditional financial institution models and instead would prefer fintech models such as Facebook, Google, and Apple. However, the 2020 Manole Capital Management Group (a fintech-focused hedge fund) study surveyed 300 college students between the ages of 18 and 24 who have established banking relationships. Eight out of 10 respondents were banking with a traditional financial institution (national bank, community bank, or credit union). Two-thirds of those surveyed said they would rather get services from a traditional financial institution instead of the one-third who would be interested in using Facebook, Google, Amazon, or Apple as their financial services provider.
These results were not an anomaly, as the same study in 2019 yielded nearly the same results. In terms of trust, seven out of 10 Gen Z respondents ranked their traditional financial institutions as "trustworthy." Not surprisingly, 96% of the Gen Z participants in the survey use digital banking services. An interesting outcome of the survey, however, dispels assumptions about how Gen Z uses the digital channel. The survey indicated that their favorite digital banking feature was checking their balance, which was cited by 50% of the respondents. The next highest rated features were remote deposit capture at 42% and paying bills at 8% (marketers, take note).
So, where is P2P? The survey concluded that P2P transactions were already seen as a separate mobile function. Just as "Google it" became a verb to describe internet searches for the Millennials and Gen X segments, "Venmo it" is a verb used by Gen Z to describe their choice for a P2P transaction. But wait, all hope is not lost for financial institutions offering a P2P product. If the behavior of the more "seasoned" generational segments is shifting to the digital products primarily used by the Millennials and Gen Z, then their shift to other digital products is a natural progression.
That change in behavior is an important shift as increased P2P usage among the Baby Boomer segment means that this is an essential digital product offering.
So, what about the predicted transfer of wealth to the Millennials? The more important question is, where will that wealth come from? You guessed it. The wealth will come from the Baby Boomers. That means that the Millennials’ anticipated balances will come from those members with large account balances already residing in your credit union! Since digital is now the primary channel for financial transactions among all generational segments, with younger segments preferring a traditional financial institution, there is now an opportunity to capture that wealth, which may have been more difficult to capture before the COVID-19 pandemic.
The strategy, then, is to build-out a digital channel with robust product offerings to keep all generational segments engaged. Not only will this meet the changes in financial behavior as a result of the pandemic, but it will also provide the ability to monitor when that transfer of wealth begins to occur.